M/I Homes, Inc.

Good afternoon. Thank you for attending today's MI Homes first quarter earnings conference call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to queue for a question on today's call, you can do so by dialing star 1. I'd now like to pass the conference over to Phil Creek with MI Homes. Thank you. You may proceed.

Thank you. Appreciate you joining us today. On the call from Columbus, Ohio is Bob Schottenstein, our CEO and president, and Derek Clutch, head of our mortgage operations. First to address regulation for fair disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant non-public items with you directly. And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call. With that, I'll turn it over to Bob.

Thanks, Phil. Good afternoon, and thank you for joining us today. We had very strong first quarter results, highlighted by record revenue, record income, and a 10% increase in homes closed. We were particularly pleased to deliver these strong results against an always changing macroeconomic landscape marked with uncertainty. As everyone knows, housing conditions today are materially different than a year ago. The best example being that today's home buyer is facing significantly higher interest rates than they were a year ago. Despite these changes in housing conditions, it is clear that there remains a strong consistent desire for home ownership. Since January 1, demand for new homes has been considerably stronger than I suspect most anyone anticipated, underscoring the strength and resilience of the consumer. We feel very good about our business and believe the home building industry will continue to benefit from strong fundamentals, including increased household formations and other favorable demographic trends. as well as an undersupply of housing and low inventory levels. In terms of our results, our pre-tax income for the quarter increased 11% to a first quarter record of $136 million. Net income increased 12% to a first quarter record of $103 million. Revenue, driven by the previously mentioned 10% increase in closings, along with a 6% increase in average sale price, increased 16% to a first quarter record of $1 billion. Though our gross margins declined by 130 basis points to 23.5%, they frankly held up better than we had expected going into this year. The decline was primarily due to mortgage rate incentives selectively employed by us, to help drive sales and closings during the first quarter. Offsetting the decline in our gross margins, our S, G, and A expense ratio improved by 50 basis points to 10%, and that is a first quarter record. Our pre-tax income margin declined by 60 basis points year over year to 13.6%, still a very solid bottom line return considering the housing conditions. and we were proud to achieve a strong 26% return on equity during the quarter. From a sales standpoint, during our last earnings call, we shared that January of this year was our best sales month since April of 2022. I am pleased to report that February was even better than January, and we are further encouraged, we were further encouraged, I should say, by the continued sales improvement in demand that we saw in March. Thus far, I'm pleased to report that April is in line with March. With that said, we sold 2,171 homes during the quarter, a decline of 14% from last year. As mentioned in my opening comments, despite the current interest rate environment, we are seeing strength in buyer demand and traffic, and that traffic is very solid and high quality. both in our communities and online. During the quarter, we were operating on average in 13% more communities than a year ago. We are on track to open a number of new communities this year and expect to increase our community count for the year by 15% over 2022. Now I'll provide some additional comments on our markets. Our division income contributions in the first quarter were led by very strong performance in Dallas, Columbus, Tampa, Charlotte, Orlando, and Sarasota. Sales for the first quarter in the northern region decreased by 30%, while sales in the southern region increased by 1%. To provide a bit more color on our sales, we have seen good, consistent demand in all of our Florida markets. as well as in Charlotte and Raleigh. Texas has also been very steady, with the exception of Austin, which was red hot a year ago and has been a bit choppy thus far in 2023. The Midwest is a bit of a mixed bag. For example, Columbus and Chicago have seen good quality consistent demand and good sales performance, while Indianapolis and Minneapolis have been slightly more challenging. Our deliveries in the southern region increased 14% from a year ago, and our deliveries in the northern region increased by 5% from last year. 60% of deliveries came out of the south, 40% out of the north. Our owned and controlled lot position in the southern region decreased by 15% compared to a year ago, and decreased by 2% from last year in the northern region. 37% of our owned and controlled lots are in the north, the other 63% in the south. That said, I want to emphasize that we have a very strong land position in terms of both the quantity of land and the quality of that land. Company-wide, we own approximately 24,000 lots, which is roughly a three-year supply. Of that total, 32% of the owned lots are in the north, 68% in the south. On top of the owned lots, we control pursuant to option contracts an additional 17,000 lots. In total, therefore, our owned and controlled lots increased 11% year over year to approximately 41,000 lots, roughly a five-year supply. Significantly, almost half of the lots that we own and control, roughly 42%, are controlled under option contracts, which gives us that important flexibility to react to changes in demand or changes in individual market conditions. In regards to our balance sheet, let me just simply say it has never been stronger. We ended the first quarter of 2023 with an all-time record $2.2 billion of equity, which equates to a book value per share of $79. We also ended the quarter with a cash balance of $543 million, and zero borrowings under our $650 million unsecured revolving credit facility, thus giving us very significant liquidity. All of this resulted in a debt-to-capital ratio of 24% down from 29% a year ago and a net debt-to-capital ratio of 6%. As I conclude, let me just state that we are in the best financial condition in our 47-year history. And despite the uncertainty surrounding the general economy, MI Homes is very well positioned to have another year of strong results in 2023. With that, I'll turn the call over to Phil.